When times get tough, most people look to their savings accounts as a buffer between going completely broke and being able to handle unexpected expenses. Emergencies are bound to come up and you want to make sure that you have something to fall back on.
Savings accounts are easy to set up at any bank or even online. You need to be able to not only prove your identity, but also to give proof of your current address or residence. Each specific entity has a different requirement on how much you will need for an opening deposit. One the account is open, you can begin depositing funds as often as you like. Choose a set amount per paycheck or week and make the deposit yourself. Or you can opt for an automatic transfer from your checking account into the savings accounts provided that they are at the same bank.
When you need to remove funds to pay a bill or just because you want some extra spending cash, just visit the bank or login online. You can walk out of the bank with cash in hand or you can have the funds transferred to your checking account. Either way, you have just given yourself access to some extra funds.
Once you take the money out, your new goal will be to pay yourself back. There is no rush and there is no interest. However, you probably know exactly how much you “borrowed” from yourself and how much you need to get back into the bank. If you don’t have savings accounts to fall back on, what is the alternative? Most people have a few options to fall back on; however, none are as simple or cost-effective as the savings account.
Credit cards are one way to pay a bill in case of an emergency. You can just charge the amount or even take a cash advance in order to get the money that you need. While this is an easy solution, it can cost you more in the long run once you pay the amount back as well as the interest charges. You can also opt to borrow money in the form of a loan. This requires that you go to a bank or apply online and wait for approval. From that point, it takes time to get the money in your hand. This option isn’t the best choice if you need money quickly or by a certain date. The approval and funding process can take time and you will need to pay back the principle as well as the interest.
The bank isn’t the only place that offers loans. You may be able to find friends or family members to borrow from. This can be a sticky situation. When you involve other people that you know, there is a chance that you won’t pay them back on time or that they will need the money back sooner. Most people look to avoid borrowing from people they know so that there is no strain placed on the relationship.
When an unexpected expense comes up, it is important to weigh out all of the options. Check to see if you have money in any savings accounts, an available balance on your credit cards, or an open loan. Then you can make the decision of where you want the money to come from and how you are going to pay it back.
If you have never been the owner of savings accounts, now is the time to start. In order to create a buffer between you and a catastrophe, you want to just have some money tucked away. Whether you have a large or small amount, this money can be the difference between paying your bills and falling behind.
Article written by Les Roberts, personal finance blogger at MoneySupermarket.com, the UK’s number one comparison website.